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How do automatic stabilizers differ from discretionary fiscal policy tools?

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armyof32000 | (Level 1) Salutatorian

Posted July 24, 2013 at 6:39 PM via web

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How do automatic stabilizers differ from discretionary fiscal policy tools?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted July 25, 2013 at 2:52 AM (Answer #1)

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Automatic stabilizers differ from discretionary fiscal policy in that automatic stabilizers do not have to be voted by Congress.  Automatic stabilizers kick in automatically when certain economic conditions arise.  Discretionary fiscal policy is only made if Congress explicitly votes to do so.

A good example of an automatic stabilizer is unemployment insurance.  There are certain levels of federal unemployment insurance benefits that are preapproved by Congress.  Anyone who meets certain criteria automatically gets those benefits.  When the economy slows down and people are put out of work, these benefits work to stabilize things without Congress having to vote.

By contrast, there can also be discretionary fiscal policy such as a “stimulus package.”   This sort of package does not come about automatically.  There is no provision that says that the government will pay out a certain level of money if economic activity slows.  Instead, Congress must draft and pass a bill to specifically lay out what sorts of stimulus spending will occur.

Thus, there is a major difference between these two kinds of government spending.  One occurs automatically while the other must be specifically voted by Congress.

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